Every news story around the world has eyes on what's going on with GameStop GME share prices as the "degenerates" of r/wallstreetbets from reddit continue to rise against the big players in the market.
But... are they really the only ones trying to buy it, or was there a sneaky hedge fund fuelling the frenzy?
As of today 28th January 2021, GameStop GME fell 35%, with investors, traders and the public thinking it's going to be the next big stock. Another Tesla!? Doesn't look like it, take a look for yourself below.
What is GameStop (GME)?
Now the question begs, now that GameStop is in the news. Do people even know what they're investing in? Read below for a quick company profile on exactly what they sell, where they're based and their business as a whole.
To put it plainly, they sell physical games and physical electronics to do with games.
The rise of gaming has been an influential factor when picking different stocks, but surely that means the future of GameStop will be profitable right? Well... let's take a look into their finances.
GameStop (GME) Statistics
One key thing when you invest in something is that you want to make money from it right? How does a stock actually grow? Stocks grow in simple terms by becoming profitable, expanding their market share and growing revenue and margin.
Of course stocks can grow in other ways too, maybe fuelled by online psychopaths but that's another story. Oh wait... it's not. That's exactly what's happened with GameStop because if we check the statistics section on GameStop we can see 3 key things about game stop.
The company is losing money
The company is not making money
Why would they make you money if they're not making any?
Considering their EPS is negative, their profit margins are negative and their revenue growth is negative by -30% you'd probably think this isn't a great investment. Ask yourself, would you throw money into the bonfire? Because that's exactly what investing in a company that has no future prospects looks like!
This is all assuming however, that GameStop don't miraculously overnight completely change their business structure to be competitive in an digital market. The rise in digital downloads and innovation in wireless technology has allowed consoles and gaming devices to just download games rather than buy physical copies. Like seriously, when was the last time you went to buy a DVD and put it into your DVD player... if that's still a thing.
If you're like most you can answer with probably not since 2010, it's outdated and there's better tech out there to make our live easier.
Why are brokers not letting traders buy GameStop
Brokers have been under lots of attention right now for one of their latest actions, ripping some public companies like GME and AMC off their trading platforms. This action itself interferes with free markets but why have they done this?
Are they colluding with hedge funds to make sure the stock sells? Are they secretly trying to F*!K their clients and retail traders? Well, the answer is probably neither.
One of the key reasons brokers are stopping traders accessing super volatile markets is to cover their own A$$. What would happen if lots of their clients lost money on a trending stock that's being hyped in the news?
One, they'll be investigated by an array of financial regulators and potentially even the Government for not doing a good enough job to protect clients money! If this happened they could be hit with fines that will heavily dent their profitability. Another big reason is if all these "degenerates" are leveraging trades which can't be paid back, it comes out the brokers pocket.
This is a dangerous game when leverage is involved as Long-Term Capital Management found out when they were over-leveraged in the markets as a flash crash happened. This single event caused Long term capital management to collapse.
Should you buy GameStop (GME)
If you've read the above, you should probably know the answer. It's up to you not me!
Just remember this one rule...
If a stock is in the news, you're already too late...
Still learning how to trade? Learn through Logikfx Investment and Trading Academy (LITA) and take the first steps into growing your value as a trader with our free online courses, webinars, seminars. All from a small team of highly skilled traders with over 15 years’ experience in the financial markets. Learn how to make money trading forex, alongside the best ways to manage your risk through a proper trading journal, and sensible approaches to setting a stop loss (that doesn't get hit)!
Already know how to trade? Save hundreds of hours each month on trading technology, analysis and research using Logikfx's Macro Technology in the LITA Portal. Computing thousands of fundamental reports for over 23 economic regions, you'll know accurate currency strength at the click of a button.